While the potential for blockchain technology to impact the lives of financial advisors and clients is massive, for the most part it will be indirect, according to experts in the field. Most profitably, they suggest, FAs who plan to be in the business 10 or 15 years from now might want to prepare themselves for a work environment in which trade clearing is perfunctory and custody is redundant.

The biggest impact of Bitcoin and other headline-grabbing cryptocurrencies is likely to come from blockchain, the e-ledger framework that publicly tracks secure transactions in chronological order, whether those transactions be virtual currencies, securities trades or any back-and-forth worth keeping.

Precisely how and when blockchain will seep broadly into financial services — let alone wealth management — is anyone’s guess. But most industry watchers think its eventual ascendance is next to inevitable because it promises to reduce the cost of sharing data by eliminating the need for reconciliation at every turn – a source now of enormous expense and delay.

Indeed, in some markets the rubber is already on the road. The Australian Stock Exchange recently ditched its legacy clearing system for blockchain technology – a move that’s likely to save it and its users a lot of money and “allow for almost instant settlement,” Adam Nickels of Capital Advisors in Shaker Heights, Ohio, tells FA-IQ.

The implications of lightning-fast settlement are stunning, adds Nickels, whose employer manages more than $700 million. “Welcome to T+0,” he says, using trading-floor shorthand for the time between a security trade’s registration — that’s the T (for transaction) — and its final settlement in days, represented by the number after the plus sign. As things stand, stock trades generally take two or three business days (T+2 or T+3) to settle, according to Investopedia.

In another notable step for blockchain, the Depository Trust & Clearing Corporation last fall started testing the technology on “its $11-trillion credit-default-swap platform, effectively eliminating the need for reconciliation,” says Nickels. The DTCC is a U.S. company owned by a consortium of banks and brokerages that streamlines securities transactions in the name of cost reduction and capital efficiency. It’s weighing a full-on rollout of blockchain technology for its derivatives business, perhaps as soon as late this year.

Meanwhile SEI, a fund processor and manager of managers in Oaks, Pa., wants to debut its own blockchain “in a relatively contained way” in about 18 months to quicken communications with “the 120 private banks” it deals with “on a daily basis,” says Joe McCabe, head of solution development for SEI’s wealth platform. “That’s where our heads are on blockchain these days.”

Writ larger, McCabe says the prospect of T+0 applied across the securities industry poses “an existential threat” to the DTCC. In this view a settler like the DTCC — and for that matter the Society for Worldwide Interbank Financial Telecommunications, or Swift, which reconciles bank-to-bank transactions — loses at least some of its raison d’etre in a world where reconciliation is practically beside the point and middlemen entirely unnecessary.

For wealth managers, the potential efficiencies of blockchain could remove the frustration of “winning a piece of business and then waiting a ridiculous period” for the money to come through, says Richard Godwin, blockchain strategy lead at SEI. “There’s a huge opportunity to solve that super-frustrating problem.”

But then that street goes both ways, adds Godwin. Blockchain also means “the money comes out faster if you’re losing business.”

Another possible effect of blockchain on financial advisors comes from its potential for disruption along the financial-data food chain in the RIA space, says Eddie Sempek, head of innovation at Omaha, Neb.-based Orion Advisor Services. Seamless, verifiable and secure data transfer eliminates a core function of custodians — and for portfolio-accounting providers like Envestnet’s Tamarac and Orion itself, adds Sempek.

Mike Capelle, chief platform officer at United Capital, couldn’t agree more. “Blockchain is a destroyer of interchanges” that exist solely because of “a potential for asymmetrical information.”

As blockchain removes the need for these interchanges — and the middlemen they create — in wealth management, transparency will increase for clients, positioning FAs aligned with that trend to function more as “financial quarterbacks” for clients, says Capelle, whose Newport Beach, Calif.-based employer, an RIA, manages around $22 billion from offices throughout the U.S.

For Christopher Lamia of Lamia Financial Group in Thousand Oaks, Calif., blockchain technology will probably mean investors will own, say, stock certificates not as paper documents in need of custody but as “digital tokens.”

Transacting in this milieu might come down to “I send the money to you and you transfer the token to me,” says Lamia, whose firm manages more than $280 million. “What do you need a custodian for? There’s no need for an intermediary.”

In a blockchain world, adds Lamia, “I may still be advising but it won’t be through Schwab.”

Orion’s Sempek sees Lamia’s point. While he thinks “there will continue to be a place for custodians” in a blockchain world, it may not be custodians per se. And downstream data untanglers like his employer and Envestnet — which, like big custodians such as Schwab and Fidelity moonlight as technology integrators and investment platform providers — are probably diversified enough from portfolio reconciliation to withstand a seismic shift in the fund accounting landscape.

But all entrenched players will have to be watchful against nimble interlopers, according to Sempek. “To the extent blockchain means there’s in essence no need for the reconciliation of data lifts a huge barrier” to getting into the business of offering advisors smart, often tech-driven, solutions to their business problems.

“That doesn’t scare us,” says Sempek. “But it is going to be disruptive.”

Articles are not written or produced by the named representative and the information has not been verified. There is no guarantee as to the completeness or accuracy of the content. Quotes and remarks have been excerpted from conversations with the interviewer and may have been taken out of context. All remarks are hypothetical in nature and are intended to be informational only. They should not be regarded as investment advice, performance claims or testimonials. This is not a solicitation, recommendation or endorsement of any investment, investment strategy, tax strategy or legal advice. There is no guarantee that any strategies discussed will result in a positive outcome. You should discuss any legal, tax or financial matters with the appropriate professional. All investing involves risk and no investment strategy can guarantee a profit or protect against loss, including the potential loss of principal.

A cryptocurrency is a digital or virtual currency that uses cryptography for security. A defining feature of a cryptocurrency is that it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation. Because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.

The legal status of cryptocurrencies varies substantially from country to country and is still undefined and/or changing in many of them. While some countries have explicitly allowed their use and trade, others have banned or restricted it. Cryptocurrency networks display a marked lack of regulation that attracts many users who seek decentralized exchange and use of currency; however, the very same lack of regulations has been critiqued as potentially enabling criminals who seek to evade taxes and launder money.

Many firms call their services wealth management but really only provide investment management with some window dressing.
That may be what you seek. But if what you require is wealth management defined as integrated financial planning, of which investment planning is just one important component,
you will want to dive deeper. Wealth management should also include retirement, estate, income tax, corporate executive,
business succession, and insurance/risk management planning. If these are services you require, be sure your advisor has the professional skills and experience to provide them.

Ask to see sample output such as sample investment update reports and cash flow pro forma
hat are critical to making investment, retirement, estate, and tax planning decisions. Ask about the
frequency of reporting and contact. Additionally, ask who will be on your service team, so you are
assured that you can always speak to professional staff members who are intimately familiar with your
affairs.

Do they consider and report on investment assets, which are held or managed by other firms
– for instance in your retirement plan? In order to properly allocate a client’s portfolio for optimum
outcomes, all assets must be considered as a whole.

Tax services are not offered through, or supervised by Lincoln Investment, or Capital Analysts.

Please Note: The scope of any financial planning and/or consulting services provided depends upon the needs of the client and the terms of the engagement.
Capital Advisors, Ltd. does not serve as an attorney or accountant. Accordingly, Capital Advisors, Ltd. does not prepare estate planning documents or tax returns.

We make no representation as to the completeness or accuracy of information provided at any third-party site. Nor are we liable for any direct or indirect technical
or system issues or consequences arising out of your access to or use of third-party sites. When you access one of these sites, you are leaving our website and assume
total responsibility for your use of the sites you are visiting.

IMPORTANT INFORMATION: This site has been prepared solely for information purposes is not intended to be a solicitation, offer or sale of securities products or investment
advisory services to anyone who resides outside of the United States.

Capital Analysts and Lincoln Investment are Registered as Investment Advisers with the U.S. Securities and Exchange Commission and Lincoln Investment is registered as a broker/dealer in all 50 states.
Capital Analysts and Lincoln Investment and its Financial Representatives may only transact business in a particular state if first registered and only after complying with registration requirements.